China’s Xi Tells CEOs He’ll Strike Back at U.S.
No more turning the other cheek, leader warns execs; that means American firms could face regulatory delays, consumer backlash
BEIJING—Chinese President Xi Jinping is responding to the Trump administration’s trade-clash escalations with a bare-knuckle approach that makes a bruising fight more likely.
After President Donald Trump raised the ante last week on punitive tariffs against Chinese products, Mr. Xi told a group of 20 mostly American and European multinational chief executives on Thursday that Beijing plans to strike back, according to people briefed on the event.
“In the West you have the notion that if somebody hits you on the left cheek, you turn the other cheek,” the Chinese leader said, according to the people. “In our culture we punch back.”
To do so, Beijing has a range of tools at its disposal. While its tariff options are limited by the level of American imports, Beijing can—as it has already done in some cases—hold up M&A deals involving U.S. companies, delay licenses, ramp up inspections or drive its 1 billion-odd consumers to shun American products.
Taking a less-compromising tone in dealing with the U.S., Mr. Xi has also urged senior officials in a recent meeting to promote China’s global role as the U.S. faces a backlash for its America First agenda, according to state media and Chinese officials.
For months, China’s leadership and senior officials have often been put off balance by Mr. Trump as he mixed calls for trade penalties with references to Mr. Xi as a friend. Mr. Xi’s top economic lieutenant has twice traveled to Washington for negotiations and offered stepped-up purchases of American goods only to come up empty-handed.
Now Mr. Xi has settled on an unyielding approach in dealing with Washington, according to Chinese officials.
“China is not going to yield to outside pressure and eat the bitter fruit,” a senior official said. “That’s the negotiation principle set by President Xi.”
Beijing’s aggressive defense is dashing hopes among businesses and investors of a settlement by July 6—the day when the White House has said it would roll out tariffs on $34 billion of Chinese goods such as machinery and home appliances. China plans to impose levies on U.S.-made soybeans, energy and other products of the same value on the same day.
Mr. Trump also plans to step up the pressure on Beijing by announcing plans late this week to bar many Chinese companies from investing in U.S. technology firms and to block additional U.S. technology sales to China, according to people familiar with administration plans.
These initiatives—designed to punish China for alleged pilfering and pressure tactics to acquire U.S. technology—followed Mr. Trump’s decision early last week to threaten tariffs on another $400 billion in Chinese goods.
The new investment restrictions target a signature initiative of Mr. Xi’s: Made in China 2025, a road map for Chinese businesses to dominate cutting edge fields, from information networks to biotechnology. Some trade experts expect the measures to clip those ambitions.
“It’s going to be a big handicap for Chinese technology development,” said Tao Jingzhou, a Beijing-based managing partner at law firm Dechert, referring to the new U.S. investment restrictions.
China’s technology and commerce ministries didn’t respond to requests for comment on Monday about the new restrictions on technology trade. A Chinese Foreign Ministry spokesman urged the U.S. to “create a favorable, fair and predictable investment environment” for Chinese companies.
The huge sum of potential tariffs Washington has raised prompted Beijing to alter its strategy, after Chinese officials earlier vowed to match the Trump administration measure for measure.
But U.S. exports to China didn’t top $200 billion last year, leaving Beijing with fewer options for tariffs. Instead Chinese officials said they would take “qualitative” measures to retaliate.
That means, trade experts said, that U.S. companies are likely to face increased inspections, further delays of regulatory approvals and an uptick in nationalist sentiment with a goal to get Chinese consumers to shun U.S. products.
“Apple’s $40 billion market in China for iPhones, the largest in the world, could quickly collapse,” Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics in Washington, wrote in a blog post. “Similarly, General Motors sells more cars in China than in the U.S., sales that could easily be disrupted by the Chinese government.”
Chinese authorities for months have been holding up their approval of Qualcomm Inc.’s planned $44 billion purchase of Dutch company NXP Semiconductors NV, a deal widely seen as critical for the U.S. chip maker.
In late May, amid signs of progress in trade talks by Washington and Beijing, Chinese regulators indicated their intention to wrap up the review and clear the transaction. But momentum immediately stalled following the White House decision to move ahead with tariffs.
China could also let the yuan slide in value against the dollar, which could make Chinese goods cheaper in foreign markets and help Chinese exports, though Chinese officials have said Beijing won’t use yuan devaluation to hit back at the U.S.
Still, “this is different from saying the currency shouldn’t play a role in the arsenal to fight cyclical downturns,” said Gene Frieda, global strategist at Pacific Investment Management Co.
China has used such tactics in the past against foreign companies whose governments were at odds with Beijing. Mr. Xi can count on his Communist Party’s tight grip on the government, media and society allowing him to impose his policies
without public debate or second-guessing from rivals—such as what Mr. Trump faces.
Chinese officials are also expected to favor European and Japanese firms over U.S. ones. While Japan’s Nomura Holdings Inc., Switzerland’s UBS Group and JPMorgan Chase & Co. all applied with China’s regulators last month to set up majority-owned brokerage joint ventures in China, JPMorgan’s application hasn’t been formally accepted by the authorities while the others have, according to people with knowledge of the matter.
At his meeting with the global CEOs on Thursday, Mr. Xi suggested that preferential treatment awaits companies whose countries aren’t embroiled in a trade fight, according to the people briefed on the event.
“If one door closes, another will open,” the people cited Mr. Xi as telling the corporate leaders, who included executives from U.S. firms including Goldman Sachs Group, Prologis Inc. and Hyatt Hotels Corp. and from European companies including Volkswagen Group, AstraZeneca PLC. and Schneider Electric SE.
The group, called the Global CEO Council, a body that was formed in 2014 by an affiliate of China’s Foreign Ministry, have in the past met with Prime Minister Li Keqiang rather than the president. By taking the meeting, Mr. Xi aimed to deliver the stiffer line on the U.S. directly to the corporate heavyweights, the people said.
Mr. Xi convened a rare high-level conclave on Friday and Saturday with other members of the leadership and senior officials to outline strategy for foreign policy. In remarks relayed by state media, Mr. Xi noted that the world was undergoing “profound and unprecedented changes” and that China needed to press its advantage in forming alliances and shaping global rules.
On Monday, Liu He, Mr. Xi’s chief trade negotiator, and a senior European Union official, European Commission Vice President Jyrki Katainen, said the two sides agreed to conclude talks on a bilateral investment agreement.
Chinese officials are also trying to jump-start negotiations for the Regional Comprehensive Economic Partnership—a proposed free trade deal involving 16 Asia-Pacific countries including China but excluding the U.S., according to a person familiar with the matter. Such talks have been progressing smoothly recently, the person said, with the next round of negotiations set to kick off in Tokyo on Sunday.